Framework for acceptance of Green Deposits of Regulated Entities (RE)

Why in news?

• The Reserve Bank of India (RBI) recently announced the framework for the acceptance of green deposits of regulated entities (RE).

About Framework for acceptance of Green Deposits of Regulated Entities (RE):

• It is intended to encourage regulated entities (usually banks and non-banking financial institutions) to offer green deposits to customers, protect the interest of the depositors, aid customers in achieving their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities/projects.
• It will apply to all scheduled commercial banks, including small finance banks and deposit-taking non-banking finance companies such as housing finance firms.
• The framework shall come into effect from June 1, 2023.

Key features:

• The entities will issue green deposits as cumulative or non-cumulative deposits.
• On maturity, they can be renewed or withdrawn.
• The green deposits shall be denominated in Indian rupees only.
• All conditions applicable to other public deposits will also be applicable to green deposits.
• The allocation of funds raised from green deposits will be based on the official Indian green taxonomy, which is yet to be finalised.
• However, as an interim measure, REs shall be required to allocate the proceeds raised through green deposits in the categories such as Renewable energy, Energy efficiency, Clean Transportation, Sustainable water and waste management etc.
• Nuclear power generation, direct waste incineration, landfill projects and hydropower plants larger than 25 MW are among the uses that are prohibited using funds raised via green deposits.
• The allocation of funds raised through green deposits by REs during a financial year shall be subject to an independent Third-Party Verification/Assurance, which shall be done on an annual basis.
• The REs, with the assistance of external firms, will also annually assess the impact associated with the funds.

About Green Deposit:

• It is an interest-bearing deposit received by regulated entities for a fixed period.
• The proceeds are earmarked for being allocated towards green finance.

PRACTICE QUESTION

Recently Reserve Bank of India (RBI) introduced the framework for the acceptance of green deposits of regulated entities (RE). Which of the following statenents is/are correct regarding the franework?

1. As per the framework green deposits shall be denominated in Indian rupees only

2.Funds raised via green deposits can be used to finance Nuclear Power Generation

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer - A